SMM News: with the recent changes in the internal and external environment, the market fluctuated violently, especially the deep V trend of the market this Friday afternoon, which many people do not understand, but in the author's opinion, the market has entered a short-term downward stage. As for the view that it is currently a bad cash, I am afraid that the persistence of external risks is more underestimated.
At this stage, the most suitable is more research and less action, for the next wave of market research reserves, and electrolytic aluminum industry may be one of the breakthroughs in the future market.
China Hongqiao continuous buyback
Since the beginning of this year, although the market performance is strong, but the performance of the electrolytic aluminum plate has been hindsight, but what is more remarkable is the repurchase of Hongqiao in China since the end of March. As can be seen from the table below, the repurchase amount of Hongqiao in China has reached HK $431 million so far this year, but there have been some breaks. The more concentrated repo occurred between March 25 and April 12, with a repo amount of HK $401 million.
With the buyback, the company's share price has also strengthened during the buyback period. Although the stock price has recently begun to fall back to almost its previous starting point, which seems to have been futile, there should always be a reason for listed companies to spend more than 400 million dollars to buy back.
Matching this is the futures price of SHFE aluminum (below), which is also the upward range of aluminum futures prices in the range of intensive buybacks.
There has been a marked improvement in supply and demand
At present, the domestic aluminum inventory has entered the peak consumption season, and the social inventory has dropped from 1.66 million tons during the holidays to 1.39 million tons. The shift in the center of gravity of futures prices, coupled with the reduction of inventories, in the matching consumption season, the electrolytic aluminum demand side is expected to continue to promote the upward trend of aluminum prices. If you look at the production side, it is also very beneficial to electrolytic aluminum enterprises.
The most important cost of electrolytic aluminum production is electricity price.
Similarly, after December 2018, the loss of electrolytic aluminum manufacturers gradually narrowed, from an average level, has now entered the profit range.
In summary, whether from the demand side or social inventory, and then to the profit situation of enterprises, have promoted the current electrolytic aluminum enterprises to break through the fundamentals, the most worried about the market is that with the return of profitability, If the social production capacity is relatively abundant, whether there will be enterprises to return to production.
In fact, in December last year, when electrolytic aluminum enterprises were the most difficult, the China Nonferrous Metals Industry Association held a forum on some of the backbone electrolytic aluminum enterprises, and representatives attending the meeting reflected at that time. At present, the domestic aluminum price has reached the average cash cost line of the industry, and the operating pressure of enterprises is close to the limit, even exceeding the worst level in the fourth quarter of 2015. Since the second quarter, some enterprises have begun to take flexible production measures one after another, especially to further expand the scale of production reduction in the second half of the year. It is estimated that up to now, the shutdown capacity of electrolytic aluminum in China has exceeded 3.2 million tons / year, of which about 80 per cent will be concentrated in the second half of the year, and the scale of domestic production to be suspended in the future may exceed 800000 tons / year. Then profits began to improve.
The latest news came on May 7, when the Department of Raw Materials Industry of the Ministry of Industry and Information Technology organized a forum on operational analysis of the aluminum industry in Beijing. Among them, alumina and electrolytic aluminum are still at risk of overcapacity, and the strict control of electrolytic aluminum production capacity is further strengthened. This phase of the industry is somewhat similar to the cement industry in early 2017.
The worst time has passed, if the production capacity can be effectively compressed, electrolytic aluminum enterprises are likely to replicate the trend of the cement industry. Among them, Chinalco (02600), China Hongqiao (01378) and Xingfa Aluminum (00098) are worthy of attention.